TALLINN — Electricity prices in Estonia are set for a jolt because of carbon emissions and excise taxes.

The carbon emissions tax, to be implemented in 2013, is part of an EU-wide agreement settled at United Nations Climate Change Conference in Copenhagen. Next year’s excise tax increase is included in the austerity measures put into the 2010 Estonian national budget.

Oil shale is Estonia’s main energy resource and produces about 90 percent the country’s electricity, but oil shale production releases a lot of carbon and Estonia’s power system has to adopt to new requirements or find now solutions to produce electricity, but either way the electricity prices are going to be higher as all the efforts to change the power system is going to reflect on consumer’s bills.

The rapid increase of oil prices might not only affect the economic developments but also domestic consumption, and households are most vulnerable to a possible electricity price increase especially now during the crises when the income has decreased and many have lost their job.

The taxes will remarkably increase the energy prices when the companies will have to start buying the carbon emission licenses on auctions. Maris Lauri, a senior economist in Swedbank told that at the moment the CO₂ price level is not known, but if this will turn to be very high, then it will affect everything that is connected to carbon emission, especially when it’s done in large scale.

“This will not affect the carbon-free manufactures, but in fact will even favor them,” Lauri told Baltic Reports.

Lauri told that the price hike will reduce consuming but the question is where the price raise will be distributed. Lauri insisted that the energy intensity in Estonian economy must reduce.

Not all bad

Einari Kisel, the Ministry of Economy and Communication deputy chancellor of Energetics, said the change of rules in carbon emission trade from 2013 will significantly increase shale oil electricity prices but on the other hand it will increase the country’s income from CO₂ quota sale and it’s important to share the CO₂ quota sale income in a way which would reduce energy consuming and secure the country’s supply.

“In other words the CO₂ trade will increase the price of electricity, but at the same time it produces the means for the state to finance the investments that is necessary for increase of energy efficiency and supply efficiency,” Kisel told Baltic Reports. “The aim is to organize things in a way, that would not increase the expenses for the consumer.”

Kisel told that as a result the production of shale oil electricity will decrease but is sure that those plants will remain important in producing Estonian electricity.

“Everything depends on the situation on the market. As Estonia is strongly connected to the electric lines of neighboring countries, then the electricity producers of other countries will play an important role,” told Kisel.

If Estonia will start consuming foreign electricity, the money leaves the country and the oil shale plants will likely go out of business. But Estonia’s largest energy company, state-owned Eesti Energia doesn’t feel threatened as their electricity production is diversifying.

Tõnis Meriste, head of Eesti Energia’s environment department, said that new power capacities are being implemented to reduce carbon emissions.

“In order to achieve that we have to diversify our production systems by, for example, put nuclear power to use, or increase the bio fuel or waste in electricity and energy production,” Meriste told Baltic Reports.

The share of shale oil in electricity production will decrease.

“The CO₂ price increase will certainly somewhat affect the oil shale related energy projects, which in one way or another will emit CO₂,” Meriste said.

Meriste is certain that taxing the carbon emission will not effect the industrial sector nor energetics, however it is clear that the carbon emission trade in side European Union will influence consumers as CO₂ tax will be added to the prices but how large the impact is, is not possible to tell.